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New report will figure in debate over electricity reserves

By: Emily Pickrell |

Texas should aim for a 10.2 to 14.1 percent cushion of electric generation capacity, according to a report Friday that will inform and probably intensify a debate over the future of the state power market.

The Brattle Group consulting firm prepared the report for the state Public Utility Commission, which is evaluating various approaches for ensuring the system remains reliable as the state’s population grows.

The report presents economic analyses for different levels of reserve power capacity, but makes no recommendations on the course Texas should make in balancing costs versus reliability.

Regulators do not set a mandatory reserve, but grid managers target a margin of 13.75 percent.

The hot summer of 2011 and more recent cold-weather brushes with blackouts, however, have prompted discussion of whether the system needs some changes.

The Brattle study found that a 10.2 percent reserve margin would be the most cost-effective for the grid. Margins below 10.2 percent would drive up costs for consumers, triggering costly shortages when demand peaks, while a higher reserve margin would mean capital cost investment in plants that would sit idle for certain portions of the year.

But the margin would have to be 14.1 percent, the study found, to meet the most common power industry standard in the United States — a one in 10 chance of power disruption during extreme weather.

Increasing the margin from 10.2 percent to 14.1 percent would cost about $100 million per year, while the grid itself costs about $35 billion a year to maintain and run, the report said.

In the coming months, the Public Utility Commission plans to use the Brattle report as part of broader discussions on options including mandatory reserve power margins or paying generators to maintain capacity that Texas power customers would seldom need.

The market pays for peak-demand generation capacity now by sending wholesale power prices to many times their normal level when the power plants called peakers come online.

In order to encourage generators to build more plants, the PUC in 2012 raised the maximum price of peak generation. It is now $5,000 per megawatt hour, and will rise to $7,000 in June and to $9,000 by 2015.